In an ongoing dispute, the New York Attorney General (‘NYAG’) has found it ‘perverse’ that both Tether and Bitfinex are refusing to cooperate in its investigation into Bitcoin price manipulation and the transfer of corporate funds. According to the NYAG:
“It’s significantly perverse for respondents to criticize the adequacy of [the Office of the Attorney General’s] potential authorized claims when respondents are those who’ve refused to reveal paperwork and data that may be instantly related to their legal responsibility.”
The legal filings indicated that Bitfinex no longer has access to over $850 million dollars of client funds and corporate funds that it handed over to a Panamanian entity known as “Crypto Capital Corp”.
Tether & Bitfinex are being investigated on the grounds that the Tether stablecoin (‘USDT’) was used to try and manipulate the Bitcoin price upwards. However, this is largely regarded as a distraction – it is now known that Bitcoin futures have been used to drive the Bitcoin price downwards, not upwards.
However, instead of investigating the price suppression, regulatory authorities are investing the legitimate upward momentum seen in December 2017. This upward momentum is a function of the strong fundamentals powering the Bitcoin network.
Neither Bitfinex nor Tether have cooperated in full with the NYAG and neither has sent in the requested core paperwork. It has been 8 months since they were asked for the paperwork.
What they are doing is technically in violation of a court order – it is not a lawsuit, but an investigation that could lead to a potential lawsuit. What both parties are doing: they are refusing to recognize the authority of the NYAG to proceed with this investigation. And this is because of the classification of cryptocurrencies.
The NYAG is claiming that Bitfinex borrowed over $850 million from Tether in order to cover their losses. Tether and Bitfinex are claiming that they have already sent over 70,000 pages of information, though they have withheld core documentation. Their legal representatives wrote that “Given the intensive jurisdictional discovery, the true motive OAG can’t marshal sufficient proof on jurisdiction is that the proof doesn’t exist.”
Cryptocurrencies are a new asset class and do not neatly fit into the existing categories of property, security, commodity, or currency. As such, there has been a serious amount of confusion with regard to their classification. Different regulatory bodies govern particular asset classes. But cryptocurrencies seem to be covered by multiple regulatory authorities.
In addition to that, the IRS introduced retroactive taxes while they tried to figure out what kind of category cryptocurrencies would fit into. The latest response from Tether/Bitfinex attorneys was that – “tethers don’t seem to be securities or commodities”. The NYAG has the authority to investigate securities and commodities, and cryptocurrencies are being treated mainly as securities currently.
The legality of such investigations is dubious in many respects. It is more likely that the Bitcoin price is being manipulated downwards rather than upwards, and that this probably is another distraction to hinder the growth of the wider industry. At the same time, Tether suffers from a litany of problems and is not at all a transparent or trustworthy enterprise.